Associate, Commercial Department, Oseko & Ouma
As the reality of the complexities involved in oil and gas exploration and production set in, it is becoming apparent to both the government and the population at large that this newly discovered commodity in Kenya takes a whole lot of efforts to commercialise than previously hyped.
The first effort to build a pipeline for oil transportation in Kenya was frustrated when Uganda pulled out of the anticipated joint pipeline construction with Kenya, favouring Tanzania instead. In 2016, the government announced an early production to be effected through road transportation.
This, however, did not actualise at the realisation that the Kenya’s crude oil is waxy and sticky in nature, and therefore needs to be transported in a heated form. This is not the only barrier to transportation of oil by road. Security, good infrastructure, risk to humans and environmental issues are also important considerations to make.
Headway, however, has been made in a Sh210 billion deal signed on October 27, 2017 between Tullow Oil and the government for joint construction of a heated 865 km pipeline to run between Lokichar and Lamu.
Looking at this narrative, it is apparent that land law is truly the hero for oil exploration and production. There are no land laws or regulations specific to passage of pipelines. Therefore, Tullow and its partners Maersk and Africa Oil will have to rely on the existing land laws. To a large extend, the pipeline will pass through private property, making usual conveyancing processes applicable.
The projected 2021 timelines for completion will only be attainable if the conveyancers involved are alive to pertinent issues in transportation of hydrocarbons. A pipeline once affixed to the land becomes part of immoveable property therefore resulting to competing interests between the oil company and the land owner. From the face of it, it looks as though absolute ownership of land by the oil company resolves this. However, ownership poses critical challenges; firstly, it is not convenient for land owners to transfer only strips of land to the purchasers. The oil company on its part is also at a loss on what to do with those strips once production ceases.
Secondly, land ownership comes with continuing burdens such payment of land rent and rates that the oil companies may not be keen on taking up. Lastly, land acquisition is a cumbersome and costly process making it commercially burdensome for the oil company. Usually, pipelines utilise what are traditionally known as easements. A mix of leases and land ownership will apply for a few parcels which will house the more frequently used facilities such as storage/ observation ports and offices, but easements will run for the better length of the pipeline.
An easement allows the oil company to access, repair and maintain the pipeline, to preclude invasive activity on the pipeline and also to safely abandon the pipeline when production ceases.
However, easements also pose various challenges. The registration of easements creates two types of real rights, being; dominant rights and subservient rights. An easement being the subservient right, or in other words the burdened land, must exist for the benefit of another parcel of land, which will be the dominant tenement.
Therefore, for an oil company to hold an easement, it must first own, as a proprietor, a parcel of land which the easement will serve.